Cultural requirements and restrictive funding guidelines attached to European film incentives have put frustrating limitations on Hollywood studios looking to tap into subsidy coin from multiple European countries on the same production. But a new plan that combines British and German production incentives for big Hollywood projects promises to change that.

Studio Babelsberg execs Charlie Woebcken, Christoph Fisser and Henning Molfenter, working with film financing specialists John Graydon and Nigel Burke of London-based accountancy group RSM Tenon and attorney Andreas Pense of Hamburg law firm Unverzagt von Have, have come up with a solution that strengthens and facilitates production ties between Germany and the U.K. with respect to major U.S. projects.

The Babelsberg plan “aims to combine two existing and well-tested film production incentives in key European film production territories for U.S. major productions for the first time: the U.K. Film Tax Relief and the German DFFF,” Pense says.

Under the plan, the U.S. studio would first commission a German company with its production, allowing it to access the German rebate (as well as additional federal and regional subsidies). The German producer would in turn commission a U.K. entity to entirely produce the project, making it possible for the production to tap Britain’s tax relief system, since the project would then be produced by a lone U.K. company.

The solution sidesteps the international co-production structure altogether. Until now, many U.S. productions were set up as unofficial co-productions between the U.K. and Germany, and while they benefited from the German rebate, they typically did not qualify for British tax relief, because they did not meet the necessary cultural requirements of the European Convention on Cinematographic Co-production, such as the writer and director being of the nationality of the country in which the offset is given.

Plus, the U.S. does not have co-production treaties with other countries that often can ease restrictions on incentives.

In the U.K., qualifying films that cost up to £20 million ($31 million) can claim up to 20% of their budget from the country’s film tax credit; bigger films can get up to 16% back. Similarly, the German Federal Film Fund (DFFF) offers a 16% rebate on spending in Germany, capped at $12.5 million. The U.K. tax credit granted a record $320 million to producers last year, with the vast majority going to Hollywood films shot in Blighty. In Germany, the DFFF offers nearly $80 million a year in rebates.

While the new plan has been set up with the U.K. and Germany in mind, it is also expected to work with the incentives of other countries.

“We believe circumstances in Europe call for greater cooperation and unity within the film industry, especially with regards to studio capacity, and in that way attract more big productions to Europe,” Woebcken says.

Germany’s federal culture and media office (BKM) and the German Federal Film Board (FFA) have indicated support for the plan.

Babelsberg, whose recent co-productions include “Cloud Atlas,” “Hansel and Gretel: Witch Hunters” and Roland Emmerich’s “Anonymous,” is in negotiations for unnamed major U.S. productions that may become the first to use the new funding structure.

Molfenter says countless U.S. producers have over the years expressed their desire to shoot in the U.K. and Germany, but were ultimately dissuaded by the inability to use the incentives of both countries.

“We’re really looking at improving the conditions in Europe for big productions, the tentpoles, so that they also have the advantages provided by incentives even when they don’t meet specific European subject-matter criteria,” Molfenter says.

The new financing structure would also provide a major boost to the European film industry, particularly studios and vfx facilities, Woebcken says.

“It’s important that Europe remains competitive within the global market for international filmmaking,” adds Graydon. “Encouraging filmmakers to make films in the U.K. and Germany is one way of doing that. ”

Indeed, cooperation rather than competition appears to be redefining the European film industry.

“If you take (Germany’s) Studio Babelsberg and (the U.K.’s) Pinewood, it’s no longer a direct rivalry,” Pense says. “I would characterize it more as an understanding that you have to join forces. From that approach stems the challenge to find a way to make the tax relief and German rebate work for major U.S. productions that haven’t qualified under any treaties or conventions so far.” What: Germany and the U.K. work out a plan to lure Hollywood tentpoles.
The takeaway: Euro players need to fill soundstages affected by the economic downturn.